Effect Of Stock Market Development Research Articles

Effects of Stock Market Development on Economic Growth: Evidence from Turkey

The studies on the role of stock market development in economic growth have been increasing in recent years. This study examines the relationship between stock market development and economic growth in Turkey during the period 1999-2013 by using Johansen-Juselius cointegration test and Granger causality test. Our empirical results indicate that there is a long run relationship between economic growth and stock market capitalization, total value of stocks traded, turnover ratio of stocks traded and also there is unidirectional causality from stock market capitalization, total value of stocks traded and turnover ratio of stocks traded to economic growth.

Stock market development, banks and firms growth: empirical evidence from Saudi Arabia

This study provides new and updated empirical investigation on the effect of stock market development, banks development and firms growth using Saudi Arabia industrial firm-level data set for the period 1995-2013 and applying GMM, MG techniques model developed for dynamic panels. The econometric results reveal that with more development in the stock market firms that use equity finance heavily grow faster than firms that do not. These findings provide firm-level support for the proposition that the development of the stock market facilitates economic growth in Saudi Arabia. Our results also show that both the stock market and the banking sector development are significant in facilitating the firm's growth in Saudi Arabia. In particular, we find that measures of both market and banking development independently predict firm's growth when entered together in firm growth regressions. The results are consistent with the hypothesis that the stock market and the banking sector development have different effects on small and large firms.

Stock market development and economic growth in Ghana: an ARDL-bounds testing approach

This article examines the relationship between stock market development and sustainable economic growth in Ghana. The study employs the recently developed ARDL-bounds testing approach and multidimensional stock market development proxies to examine this linkage. The article finds that in the long run, stock market developments and capital account liberalization policies have no positive effect on economic growth in Ghana. This finding supports the numerous past studies, which have reported negative or inconclusive results on the effects of stock market development on economic growth. The article, therefore, concludes that it is the increase in credit to the private sector, rather than stock market development that drives the real sector development in Ghana.

Interrelationships among banks, stock markets and economic growth: an empirical investigation

This article utilizes a simultaneous equations model to study the relationships among economic growth, banking and stock market development. In contrast to conventional instrumental variable approach, we implement the analysis via the methodology of identification through heteroscedasticity. Using Beck and Levine (2004) dataset, we find that each of the three variables interacts in important ways. While both are conducive to economic growth, banking development matters more for growth in low-income countries and stock market development is more favourable to growth in high-income or low-inflation ones. The data also reveal coexistence of a positive effect of banking development on stock market development and a negative effect of stock market development on banking development. Besides, the feedback effects of growth on both banking and stock market development are found.

Credit buildups and the stock market in four East Asian economies

We examine the relationship between intermediaries, stock markets, and real activity in four East Asian crisis economies (Indonesia, Korea, Malaysia, and Thailand) using a series of comparative vector autoregressive and error correction models with quarterly data from 1995 through 2010, thus including both the financial crises of 1997–1998 and 2008–2009. Although we find generally positive effects of stock market development and liquidity on growth and investment for all four countries, expansion in traditional measures of financial development do not promote growth, and even have strongly negative effects for Indonesia and Korea. The results from these economies suggest that credit can build up to the point of “saturation,” and that a well-functioning stock market can serve as a growth-promoting outlet for funds as a financial system expands and evolves.

What determines mutual fund trading in foreign stocks?

We examine the portfolio rebalancing, measured by the equity churn rate, of mutual funds from 29 countries based on annual stockholdings over the 1999–2006 period. We find that funds more often trade the stocks of companies located in countries with higher degree of information asymmetry and are less familiar to fund managers, after we control for the effects of stock market development and investor protection. Consistent with the behavioral bias, fund managers more often rebalance stocks in foreign markets that perform well. This bias is exacerbated when fund managers are less familiar with and less informed about those markets.

Firm Survival and Financial Development: Evidence from a Panel of Emerging Asian Economies

Using a panel of five Asian economies - Indonesia, Korea, Malaysia, Singapore and Thailand - over the period 1995-2007 we analyze the links between firm survival and financial development. We find that traditionally used measures of financial development play an important role in influencing firm survival. When stock markets become larger or more liquid firms' survival chances improve. On the contrary, we show that higher levels of financial intermediation can increase firm failures. We also find that the beneficial effects of stock market development are more pronounced during the later years of our sample, while the adverse effects of bank intermediation have declined over time. Finally, large firms are more likely to benefit from developments in financial markets compared to small firms.

Stock Market Development and Macroeconomic Performance in Thailand

Rapid development of financial markets particularly stock markets has been a main feature of many emerging markets. The conventionally held view, which has a basis in the seminal work of Schumpeter (1911), is that the stock market development is beneficial to the economy since it provides liquidity and an avenue for risk sharing and diversification, allows efficient allocation of resources to productive investment, reduces information and transaction costs and, consequently allows firms to undertake profitable investments. This view has been supported by various early empirical studies noting a positive relation between stock market development and economic growth. It has also been supported by recent studies utilizing advanced time series econometrics and finding the causal influences of stock market development on economic performance. Still, against this view and empirical evidence, some have also noted potential detrimental effects of stock market development through saving reduction, facilitation of counterproductive corporate takeovers, attraction of speculative inflows and reversal of financial capitals. The questions as to whether the stock market development influences macroeconomic performance and whether it can be employed as a development policy strategy are particularly relevant for emerging or developing economies. Over the past years, these economies have attempted to promote their stock markets with the objective of improving resource allocation and, consequently, of propelling their economic growth. However, after especially the liberalization of their financial markets, they have been exposed to sharp swings and wide fluctuations of their market performance, which may have inflicted detrimental impacts on macroeconomic performance. In this regards, the 1997/1998 Asian crisis, which started in Thailand and propagated to other Asian economies, is a good example. In looking at whether stock market development contributes to macroeconomic performance, existing studies have mainly looked at the relation between stock market development indicators and measures of economic performance using a linear regression model or has ascertained the causal relations that run from the stock market development indicators to macroeconomic variables using such approached as Granger causality, vector error correction modeling (VECM) and vector autoregressive modeling (VAR). While it is essential to document a strong relation between them, the linear regression model is not sufficient to establish causation. Moreover, the employment of a dynamic model such as the VAR or VECM and the finding of a causal pattern that runs from the stock market development to economic growth are not sufficient for policy prescription. This stems from the fact their relation or causal influences may shift due to the shift in regimes, signifying that the stock market development cannot be employed as a policy variable. In short, their relations are the subject of the well-known Lucas critique. In this paper, we utilize a 4-variable framework and quarterly data from 1993 to 2007 to examine the stock market and macroeconomic performance relation for Thailand. To this end, we first evaluate the causal patterns between a measure of stock market development and measures of macroeconomic performance, which is essential to evaluate whether stock market development 'causes' growth. Then, we assess whether the relations between the two main variables, i.e. measures of stock market development and macroeconomic performance, are structurally invariant to policy shifts. Hence, in addition to using standard time-series econometrics of cointegration and vector autoregressions (VAR), we alo examine within the error correction setting the superexogeneity of the stock market development. More specifically, to make a strong case for promotion of the stock market as a development strategy, the stock market development must be superexogenous since their relationship is structurally invariant to policy shifts and, accordingly, circumventing the famous Lucas critique in making policy recommendation. The cointegration test results suggest the presence of a long run relationship among the variables, namely, real gross domestic product (GDP), market capitalization ratio, investment ratio, and the aggregate price level. Further, the impulse-response functions and variance decompositions simulated from the estimated VAR models clearly indicate positive and sizeable contributions of stock market development to real GDP as well as investment ratio. Finally, the superexogeneity test indicates that the stock market development is superexogenous in the system. Thus, the relation between economic development and stock market development is structurally invariant to policy shifts. In the case of Thailand, there is a strong case for policy prescription to promote the development of its stock market as a catalyst to economic growth.http://dx.doi.org/10.5755/j01.ee.22.3.513

Credit Buildups and the Stock Market in Four East Asian Economies

We examine the relationship between intermediaries, stock markets, and real activity in four East Asian crisis economies (Indonesia, Korea, Malaysia, and Thailand) using a series of comparative vector autoregressive and error correction models with quarterly data from 1995 through 2010, thus including both the financial crises of 1997-98 and 2008-9. We often find negative effects of traditional measures of financial development on growth and investment, while the effects of stock market development and liquidity are generally positive. The results from these economies suggest that credit can build up to the point of “saturation,” and that a well-functioning stock market can serve as a growth-promoting outlet for funds as a financial system expands and evolves.

Firm survival and financial development: Evidence from a panel of emerging Asian economies

Using a panel of five Asian economies – Indonesia, Korea, Malaysia, Singapore and Thailand – over the period 1995–2007 we analyze the links between firm survival and financial development. We find that traditionally used measures of financial development play an important role in influencing firm survival. When stock markets become larger or more liquid firms’ survival chances improve. On the contrary, we show that higher levels of financial intermediation can increase firm failures. We also find that the beneficial effects of stock market development are more pronounced during the later years of our sample, while the adverse effects of bank intermediation have declined over time. Finally, large firms are more likely to benefit from developments in financial markets compared to small firms.

Firm Survival and Financial Development: Evidence from a Panel of Emerging Asian Economies

Using a panel of five Asian economies - Indonesia, Korea, Malaysia, Singapore and Thailand - over the period 1995-2007 we analyze the links between firm survival and financial development. We find that traditionally used measures of financial development play an important role in influencing firm survival. When stock markets become larger or more liquid firms' survival chances improve. On the contrary, we show that higher levels of financial intermediation can increase firm failures. We also find that the beneficial effects of stock market development are more pronounced during the later years of our sample, while the adverse effects of bank intermediation have declined over time. Finally, large firms are more likely to benefit from developments in financial markets compared to small firms.

Stock Market Development and Economic Growth: The Case of Selected African Countries

Abstract: This paper studies the effect of stock market development on economic growth in 14 African countries in a dynamic panel data modelling setting. Results largely show a positive relationship between stock market development and economic growth. Further analyses, based on the level of economic development and stock market capitalization, are also conducted. The results reveal that the positive influence of stock market development on economic growth is significant for countries classified as upper middle income economies. On the basis of market capitalization groupings, stock market developments play a significant role in growth only for moderately capitalized markets. The general trend in results shows that low income African countries and less developed stock markets need to grow more and develop their markets to elicit economic gains from stock markets.

The effects of stock market development on growth and private investment in lower-income countries

Recent literature argues that stock market liberalisation has positive long- and short-run effects on macroeconomic growth and private investment, respectively. However, given a sample of up to 64 countries from 1981 through 1998, positive results for long-run growth are largely dependent on the inclusion of higher-income countries in regression samples, which limits the relevance for lower-income nations. Indeed, some evidence in this study indicates that stock market development has a more positive impact on growth for greater levels of per capita GDP, lower levels of country credit risk, and higher levels of legal development. Similarly, using a sample of 26 countries from 1981 through 1998, lagged equity price appreciation seems to boost private investment growth in the short-run, but only in rich countries. All in all, these results imply subdued enthusiasm regarding emerging equity market development.

Stock Markets, Corporate Finance, and Economic Growth: An Overview

The research presented here focuses on four issues. First, it constructs more measures or criteria of stock market development than any previous study. It compares liquidity, concentration, volatility, institutional development, and international integration across forty-four industrial and developing countries from 1976 to 1993. Besides identifying general characteristics of these measures and defining stock market development empirically, these data facilitate further research into the relationship between stock market development and financial intermediaries, corporate finance decisions, and economic growth. These measures, ranked for each country, can be used for inter country comparisons of the level of stock market development. In addition, the data provide a basis for gauging the success of capital market development projects using objective criteria. Second, with these new data the research investigates the relationships between stock markets and financial intermediaries. Third, the research analyzes the relationship between stock market development and long-run economic growth. Fourth, the research studies the ties between stock market development and financing choices of firms. This overview puts this research in context and reviews the main results of the study. Section I provides a brief review of the role of stock markets in economic development and documents the evolution of debt and equity markets during the growth process. Section II defines stock market development and presents summary data on the development of financial intermediaries and stock markets. Section III presents evidence on the effect of stock market development on economic growth. Section IV summarizes the empirical results on how stock market development affects firm financing decisions. Section V concludes by discussing policy implications.